Shares in
Gilead Sciences Inc.
GILD -0.43%
fell as much as 10% in morning trading Wednesday on the New York Stock Exchange, a day after the company estimated the discounts it gives on new hepatitis C drugs would more than double this year.

Investors appeared surprised by the amount of the discounts, which Gilead said during an earnings call on Tuesday would increase to an average of 46% this year, up from 22% last year.

Drug companies typically offer discounts off the list prices of their drugs to win preferential treatment on health plan formularies. Yet the level of Gilead’s price discounts has been an issue for Wall Street, which fears that competition for the company’s hepatitis C drugs, Sovaldi and Harvoni, could blunt a franchise that helped the company double its revenue in 2014.

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On the earnings call Tuesday, Gilead executives said it was the nature of the payers covering its drugs that was affecting the level of discounting, rather than competition from rival drugs. The Foster City, Calif., company expects its price discounts to increase because Medicaid and other public payers that impose steep discounts are starting to reimburse the drugs, Gilead President John Milligan said.

Dr. Milligan said more patients would be taking Gilead drugs, as more payers agreed to cover the treatments. And he tried to ease concerns that the company would have to discount even further as more competition enters the market, citing the strong benefits that Harvoni has demonstrated in patients, and what he described as additional promising treatments in development.

“I’m not at all concerned about future competition that people seem to be concerned about. I think it is a very strong category for us with our profile,” he said.

Gilead’s financial performance last year was strong, thanks to Sovaldi and Harvoni. The two drugs notched $3.84 billion in sales in the fourth quarter, exceeding Wall Street estimates and making their launches the best ever for new drugs. For the full year, the two drugs reached $12.4 billion in sales, which combined would have been more than any drug’s revenue in 2013.

The new drugs also helped Gilead, once known for its HIV/AIDS treatments, to more than double its revenue to $7.31 billion in the quarter and $24.9 billion for the full year from the comparable periods in 2013.

The company’s net profit in the quarter more than quadrupled to $3.49 billion, or $2.18 a share, up from $791.4 million, or 47 cents a share, a year earlier. Excluding stock-based compensation, acquisition-related charges, acquisition-related impacts and other items, per-share earnings rose to $2.43 from 55 cents.

Gilead is now one of the world’s biggest pharmaceutical companies by sales. For the first time in its history, the Foster City, Calif., company said it plans to start paying a dividend, of 43 cents a share, beginning in the second quarter. Gilead also said it would begin a five-year $15 billion share buyback program on top of the $3 billion in repurchases already planned, and executives hinted at an interest in deal-making.

Some health plans and drug-benefit managers have complained about the high cost of Sovaldi and Harvoni, which carry price-tags of $1,000 a day or more for certain patients. Viekira Pak, the rival AbbVie drug that the Food and Drug Administration approved for sale in December, has won preferential treatment on some formularies after AbbVie offered undisclosed discounts.

Pricing pressures in the U.S. and Europe for the hepatitis C drugs are a factor in Gilead’s estimate of $26 billion to $27 billion in 2015 net product sales. Gilead said it has now gained reimbursement for Sovaldi in most of Europe and was making progress on Harvoni. The stronger U.S. dollar was also a factor in Gilead’s projection.